Originally published by Rivkin Securities
Trade wars continue to drive markets and last night commodities were the main victim of this war. The CRB commodity index lost 2.75% while oil plunged almost 5%. Fears of a decline in global growth as a result of the trade tariffs probably underlined the fall in commodities. A corresponding flight to quality led to a 0.6% gain in the US dollar index and saw bonds rally. The US yield curve is now at a new low with the spread between the 2-year and 10-year bonds just 27 basis points. This indicates the market isn’t confident about the longer term economic growth outlook. Stocks didn’t fare well either with the Dow Jones falling 0.9%. European markets also performed poorly with the Dax index down 1.5% and the FTSE 100 down 1.3%.
Oil’s huge decline overnight came despite a massive drawdown in inventories reported by the department of energy. A 12.6m barrel drawdown is the largest since September 2016 and brings total inventory levels back to those last seen in February 2015. Stocks at Cushing Oklahoma, the location where delivery for futures contracts occurs, are now less than half the levels they were at in late 2017.
The rally in the US Dollar Index sent the Australian dollar tumbling, currently sitting around US$0.736 and again approaching 18-month lows. The weak Australian dollar will be a welcome development as far as the Reserve Bank is concerned as it expects Australian exports will be a beneficiary.
The Canadian central bank hiked rates by another 25 basis points to 1.5% and in its statement commented that further hikes are on the cards. Tonight, US CPI data will be released. ASX 200 futures are down eight points this morning.
Data Releases:
- US CPI 10:30pm AEST